'Apartheid-era debt': Absa share value down R1.75bn by midday

The market’s response to the public protector’s preliminary report – directing a R2.25-billion claim from Absa Bank for apartheid-era debt – was muted on Friday, after the South African Reserve Bank echoed Absa’s concerns about the accuracy of the report.

This comes after the Mail & Guardian on Friday revealed that the public protector had made a preliminary finding that government should make a claim against Absa for an unlawful bank bail-out from the Reserve Bank granted to the Bankorp Group, which was later bought by Absa.

Analysts said that, in the broader scheme of things, even if there was a successful claim, this would not impact the bank’s position significantly.

The market response may have been tempered by statements put out by Absa and Reserve Bank governor Lesetja Kganyago citing several factual and legal inaccuracies.

Kganyago told Radio 702 on Friday morning: “We have received the preliminary report from the public protector. We are checking it for factual accuracy, we have already spotted a number of errors.”

“We are going through that report with our lawyers.
And we are very grateful that the public protector has given us an extension to get back to her … We will give extensive comment to the public protector,” he said.

Absa also said it would be making further submissions to the public protector and that the preliminary report “in its current form … perpetuates an incorrect view that Absa Bank Ltd was the beneficiary of undue SA Reserve Bank assistance”.

The markets responded only slightly negatively to the news on Friday. Absa, trading as Barclays Africa, saw its share price dip 1.2% between the market opening and midday – which equates to a total market capitalisation loss of R1.75-billion.

While the other three major banks, First Rand, Nedbank and Stanard Bank, were all slightly up on the day. The market as a whole was up 0.75%

“The market today is taking a dim-ish view of the news,” said Sasha Naryshkine, portfolio manager at Vestact on Friday.

There are other factors that may be affecting the Barclays Africa share price, Naryshkine said.

“Remember the main shareholders [Barclays PLC] are looking to sell Barclays Africa at some level. A spanner in the works is the small matter of Brexit and the weakening of pound sterling.”

A weaker pound means shareholders in the UK will receive less when selling the African operation.

The pound sterling weakened this week and dropped from R16.8 to the pound on Wednesday to R16.4 on Friday.

It all depends how shareholders view the potential fine relative to the company market capitalisation.

Barclays has a market cap of around R145-billion, while the potential fine the bank faces – as reported by the Mail & Guardian – is R2.25-billion.

“I’m not saying it’s nothing, but it is relatively small,” said Naryshkine. He pointed out that globally, banks had faced much larger fines for misconduct. And as far as South African companies go, MTN last year faced a far heftier fine of R60-billion, imposed by the Nigerian Communications Commission.

“On a relative scale it’s not huge,” Naryshkine said.

However, if a fine is levied against Absa, the precedent it would set would be important, he said.

“What will it mean for the valuation of local business that continues to operate since the apartheid era? … Where do you draw the line?

However, an economic analyst said it was not good for business confidence.

“I think, in my own view, it’s not good for business confidence. There are all kinds of difficulties with the political system, now to come after 20 years and find something wrong [with the Absa transaction], it sounds a bit outdated,” South African Chamber of Commerce and Industry economist Richard Downing told the M&G.

“I can’t see the purpose it serves in trying to solve economic problems. It seems like a sideline issue,” he added.

Lisa Steyn

Lisa Steyn is a business reporter at the Mail & Guardian. She holds a master's degree in journalism and media studies from Wits University. Her areas of interest range from energy and mining to financial services and telecommunication. When she is not poring over annual reports, Lisa can usually be found pottering about the kitchen.